Rising Interest Rates: What it Means for Buyers

It’s no secret that rising interest rates are affecting homebuyers. As rates increase, it’s normal for buyers to ask questions about affordability. Here are a couple things to keep in mind if you’re planning to buy in the next 1-2 years in Austin.

First, keep in mind the historical mortgage interest rates.

As you can see, the rates under 3% that were available last year were an all-time low anomaly. If you look at a snapshot of the last 10 years, rates have hovered closer to 4%. Looking even further back over the last 20+ years, rates averaged around 6-8%. The all-time highest peak was in the ’80s at around 18%.

While no one can predict where rates will settle during this current increase, these historical figures can be helpful to keep in mind as we keep an eye on rising interest rates.

What this means for homebuyers

Several rate increases are expected to occur this year, though we do not yet know by how much. If you’re in the market to purchase a home, be sure to have a lender in close contact. Homespace Realty has a team of experienced lenders we work with, so reach out if you need a contact!

Buying Resale (Previously Owned Homes)

Buying a home sooner rather than later can be advantageous. As soon as we contract on a house, interest rates can be locked in. Locking in a low interest rate now will save you money monthly for the life of your mortgage loan; a big plus!

The downside of this approach is that with Austin’s inventory shortage, most resale homes are selling 10-20+% over the list price with multiple offers.

Buying New Construction

Buying a brand new home means you will be under contract longer while waiting for the home to be built. Interest rates are typically not available to lock in until 60 days prior to closing. This can leave buyers in a position of not knowing what their mortgage payment will be until the house is complete.

However, 100% of Homespace homebuyers under contract on new construction right now already have equity in their homes due to rapidly increasing home prices. While the end mortgage payment may be higher than anticipated, new construction buyers are very likely to close with equity lining their pockets; an advantage not as available to resale homebuyers right now.

The Takeaway

Rising interest rates don’t necessarily mean that buyers should put their search on pause. No matter what type of home you’re purchasing, the #1 thing homebuyers can do right now is connect with a lender. Asking about interest rate projections as well as extended rate-lock options can help curb some of the uncertainty and put buyers’ minds at ease.

We’re here to help! We’d love to be your resource for all things real estate, so please contact us any time.

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